The Incoterm in an equipment purchase contract decides who handles each leg and where risk passes. For project cargo, the wrong choice can leave the owner carrying the hardest legs without control over them.
Incoterms 2020 has 11 rules in two groups
Incoterms 2020 are published by the International Chamber of Commerce (ICC). Compared with the 2010 edition, DAT was replaced by DPU (Delivered at Place Unloaded).
| Group | Rules |
|---|---|
| Any mode of transport | EXW, FCA, CPT, CIP, DAP, DPU, DDP |
| Sea and inland waterway only | FAS, FOB, CFR, CIF |
What matters for project cargo
- FOB, CFR and CIF are meant for sea cargo delivered on board the vessel. Containers handed over at a terminal fit better with FCA, CPT or CIP.
- Insurance: under Incoterms 2020, CIF only requires minimum cover (Institute Cargo Clauses C), while CIP requires higher cover (Clauses A). For high-value equipment, agree the level of cover explicitly.
- FCA 2020 lets the parties agree that the buyer's carrier issues an on-board bill of lading to the seller, which helps with letters of credit.
- DAP, DPU and DDP move almost the entire transport chain to the seller; the buyer handles little logistics but also has little control over schedule and methods.
Incoterms do not cover stowage costs on breakbulk vessels
For breakbulk or chartered vessels, the cost and responsibility for loading, discharging and securing cargo on board also depend on the terms of the charter party or bill of lading. Agree these at the same time as the Incoterm.
Suggestions for owners and EPC contractors
- To control the international leg and delivery dates, consider FCA or FOB and appoint your own logistics provider.
- The inland leg in Vietnam is often the hardest for project cargo: give it to a logistics provider with local experience.
- Involve your logistics provider during procurement so delivery terms, packing and production schedules match the transport plan.